AuthorTopic: Shariah Screening Criteria (Read 16537 times)

Meant for any positive informative discussions regarding Shariah Screening Criteria, while strictly following the forum rules and norms of decency.

Logo:

Shariah Screening Criteria

Presently Shariah compliance of stocks is done under the guidance of qualified and reputed Shariah experts. For stocks to be “Shariah compliant”, it must meet ALL the six key tests given below:

1.Business of the Investee Company

The core business of the company should not violate any principle of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest like conventional banks, insurance companies, leasing companies or the companies involved in some other business not approved by the Shariah e.g. Companies making or selling liquor, pork, haram meat, or involved in gambling, or any other impermissible activities.

If the main business of the investee companies is Halal, like automobiles, textiles, manufacturing concerns etc but they deposit their surplus amounts in an interest bearing account or borrow money on interest, the share holder must express his/her disapproval against such dealings, preferably by raising his/her voice against such activities in the annual general meeting of the company and/or by sending a letter to the management in this regard.

2.Interest Bearing Debt to Total Assets, <37%

The Interest Bearing Debt to Assets ratio should be less than 37%. To understand the rationale behind this condition, it should be kept in mind that such companies are mostly based on interest. Here again, the aforementioned principle applies i.e. if the shareholder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him/her. Debt, in this case, is classified as any interest bearing debt including Bonds, TFCs, Commercial Paper, Conventional Bank Loans, Finance Lease, Hire Purchase, issuing preference shares etc.

3.Non-Compliant Investments to Total Assets, <33%

The ratio of Non Compliant Investments to Total Assets should be less than 33%. Non-Shariah Compliant Investments include investments in conventional mutual funds, conventional money market instruments, Commercial Paper, interest bearing bank deposits, Bonds, PIBs, FIB, T-Bills, CoIs, CoDs, TFCs, DSCs, NSS, derivatives etc. Non-Compliant investments also include investments in companies which are declared Shariah non-Compliant due to non-compliance to any of the mentioned criteria for Shariah Compliance.

4.Non-complaint Income to Total revenue, <5%

The ratio of Non Compliant Income to Total Revenue should be less than 5%. Total Revenue includes Gross Revenue plus any other income earned by the company. Non Compliant Income includes income from gambling, income from interest based transactions, income from Gharar based transactions i.e. derivatives, insurance claim reimbursement from a conventional insurance company, any penalty charged on late payment in credit sale, income from casinos, addictive drugs, alcohol, dividend income from above mentioned businesses or companies which have been declared Shariah Non-Compliant due to non-compliance to any of the mentioned criteria for Shariah Compliance etc.

5.Illiquid Assets to Total Assets, >25%

The ratio of Illiquid Assets to Total Assets should be at least 25%. The Sum of all those assets whose trade price can deviate from par value, according to the rules of Shariah, is considered the aggregate value of illiquid assets. Illiquid Assets include inventory of raw materials, work-in-process, all fixed assets such as property, plant & equipment, stores and spares, stock in trade etc.

6.Net Liquid Assets/Share vs Market Price/Share

Market Price per share should be at least equal to or greater than net liquid assets per share.

Pakinvestorsguide

Hope this will Inshallah help all of us who, from time to time, got into some heated discussion in the ‘Shariah Screening Criteria’ thread.---------------------------

Definition: Disagreement is when ideas, positions, or sayings carried by an individual or group are different from the opinions of others.

The Etiquettes of acceptable disagreement in Islam:

1. The Muslim should avoid disagreement as much as possible. Disagreement should come only when there is a valid reason.

2. The Muslims should only have acceptable disagreements among themselves based on what has been mentioned.

3. In case of a dispute or disagreement in any matter of deen muslims should referee to the Book of Allah and the Authentic sunnah of Prophet Muhammad (S.A.W.). However in any matter of worldly live should be refereed to those who specialize in the matters.

4. The Muslim must be ready to accept the verdict from Allah (S.W.T.) and His Messenger with complete submission after the truth becomes clear to them. In this case they should not stick to the wrong opinion.

5. The intention in the disagreement should be only pure for the sake of Allah (S.W.T.), not to satisfy one's desire or arrogance.

6. Everyone in this disagreement should believe that there is a possibility for the others to have the truth or the correct opinion.

7. People, who disagree, should have the good Etiquette and behavior in their discussion. This should include that they look to the matter objectively, not to go out of the subject, choosing the accurate word, clarifying the meaning of the term that they will use, and also that they select the best words and statement avoiding the bad ones, that they listen to the other opinions carefully with an open mind, and finally, to avoid interrupting others while giving enough time for them to express their points.

8. People who disagree should not continue with aimless arguing, they should end their discussion soon after the opinions are proven clearly or when believing that the others are hardheaded with their opinion.

9. Muslims in their disagreement should restrain themselves from accusing others of deviation, corruption, or other accusations, and should instead believe that they are good and sincere in their opinions.

10. The goal of the discussion should be only to reach the correct opinion and that it is not important to reach the correct opinion through you or others.

11. If no agreement is reached, then they should respect each other’s opinion with finding an excuse for that person. This is in the frame and methodology of the people of the sunnah and jama'h. And also to cooperate with other points agreed upon.

12. Supplication to Allah (S.W.T.) to open our hearts and minds to the truth.

O’ Allah show us the truth clearly and help us to follow it and love it. O’ Allah show us the false clearly and help us to stay away from it and to hate it.

Please contact Al Meezan Investment Management Ltd., who screen shares according to 'Shariah Screening Criteria', in case of a difference of opinion.

Mufti Muhammad Taqi Usmani is a renowned figure in the field of Shariah, particularly in Islamic Finance. He currently holds advisory positions in a number of financial institutions practicing Islamic Banking and Finance.

Mufti Muhammad Taqi Usmani has vast experience in Islamic Shariah, teaching various subjects on Islam for 39 years. He has served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan from 1982 to 2002. He is also the Editor of the magazine ‘Albalagh’ (a weekly publication of Jamia Darul Uloom, Karachi) as well as an active contributor of articles in leading Pakistani newspapers.

Born in India, Mufti Muhammad Taqi Usmani graduated from Punjab University, Pakistan in 1970 and also holds an LLB from Karachi University, Pakistan. Prior to these, he completed the ‘Takhassus’ course, which is the specialization course of Islamic ‘Fiqh’ and ‘Fatwa’ (Islamic Jurisprudence) from Jamia Darul Uloom Karachi, Pakistan.

In March 2004, His Highness Sheikh Mohammad Bin Rashid Al Maktoum (Dubai Crown Prince and UAE Minister of Defense) presented a special award to Mufti Muhammad Taqi Usmani in recognition of his lifetime service and achievement in Islamic Finance at the occasion of International Islamic Finance Forum, Dubai, which is one of the biggest events in Islamic Finance Industry.

Mufti Muhammad Taqi Usmani advises a number of international financial institutions including Dow Jones, Bharain Monetary Agency and Islamic Corporation for the Development of the Private Sector (A Member of the IDB Group) on Islamic law.

Sheikh Abdul Sattar Abu Ghuddah

Dr. Abdul Sattar Abu Ghuddah is the Shariah Advisor and Director, Department of Financial Instruments at Al-Baraka Investment Co. of Saudi Arabia. He holds a PhD in Islamic Law from Al Azhar University Cairo, Egypt. He is an active member of Islamic Fiqh Academy and the Accounting & Auditing Standards Board of Islamic Financial Institutions.

Dr. Abdul Sattar teaches Fiqh, Islamic studies and Arabic in Riyadh and has done a valuable task of research and compiling information for the Fiqh Encyclopedia in the Ministry of ‘Awqaf’ and Islamic Affairs, Kuwait. He has been a member of the ‘Fatwa’ Board in the same Ministry from 1982 to 1990.

Dr. Daud Baker

Dr. Muhammad Daud Bakar was an Associate Professor in Islamic Law and Deputy Rector at the International Islamic University Malaysia (IIUM). He received his first degree in Shariah from the University of Kuwait in 1988 and Ph.D from the University of St. Andrews, U.K. in 1993. He completed his external Bachelor of Jurisprudence at University of Malaya 2002.

He is presently a member of the Shariah Advisory Council at the Central Bank of Malaysia, Securities Commission of Malaysia, Oasis Asset Management (Cape Town, South Africa), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Dow Jones Islamic Index (New York). Dr Bakar now operates his own Islamic training and education facility.

Sheikh Yusuf is the author of “A Compendium of Legal Opinions on the Operations of Islamic Banks”, the first English reference on the fatawa issued by Shariah boards. His three-volume publication has become the standard reference for Islamic financial institutions. In addition, Sheikh Yusuf wrote the introduction to “Islamic Bonds”, the 2003 book that introduced Sukuk and transformed the world’s Islamic capital markets. His written work has appeared in journals and newsletters and as chapters in books, including Euromoney’s “Islamic Asset Management”, “Islamic Retail Finance and Islamic Finance: Innovation & Growth”. His entries on the terminology of Islamic Finance appear in The Oxford Dictionary of Islam.

Sheikh Yusuf is also a special consultant, appointed by the Asian Development Bank and the Islamic Development Bank in Jeddah to the International Financial Services Board (“IFSB”) on the subject of Sukuk. IFSB is the international standard-setting body of regulatory and supervisory agencies that have a vested interest in ensuring the soundness and stability of the Islamic financial services industry, broadly defined to include banking, capital markets and insurance.

Sheikh Nizam Yaquby

Sheikh Nizam Yaquby is a graduate in Economics and Comparative Religion from McGill University and is an internationally acclaimed scholar in the Islamic banking industry. He advises a number of banks and financial institutions including Abu Dhabi Islamic Bank, BNP Paribas, Dow Jones, Lloyds TSB, Citi Islamic Investment Bank E.C. Bahrain and Standard Chartered on matters pertaining to Islamic Banking and Finance.

Sheikh Nizam Yaquby has contributed important original research on many aspects of modern Islamic finance, and is considered one of the world’s leading experts in the field. Since 1976, he has taught tafsir, hadith and fiqh in Bahrain. He is also the author of several articles and publications on Islamic finance and other sciences in English and Arabic.

Dr. Mohamed A. Elgari

Dr. Mohamed A. Elgari holds a Ph.D. in economics from the University of California. He is a professor of Islamic Economics at King Abdul Aziz University. He is an expert at the Islamic Jurisprudence Academies of the Organization of Islamic Countries and the Islamic World League. Dr. Elgari is member of Shariah Boards of many Islamic Banks and Takaful Companies including that of Dow Jones, International Islamic Fund Market, Citi Islamic Investment bank, Merrill Lynch and Saudi American Bank.

Mufti Hassan Kaleem

Mufti Hassan Kaleem studied Islamic jurisprudence at Jamia Darul Uloom Karachi and specialized in the science of issuing Islamic legal edicts. He serves on the Shariah board of a number of international institutions including Deloitte and Bank al-Baraka. He is renowned as an expert on Takaful (Islamic insurance). He is a student of the renowned Sheikh Taqi Usmani.

Dr. Muhammad Imran Ashraf Usmani

Dr. Muhammad Imran Ashraf Usmani is a M. Phil and Ph. D. in Islamic Finance and is a graduated as a scholar from Jamia Darul Uloom, Karachi, Pakistan. He has also completed the specialization course in Islamic Jurisprudence from Jamia Darul Uloom, Karachi, Pakistan. Currently he is involved in conducting training sessions for Meezan Bank’s staff in the area of Islamic finance and has been teaching several subjects of Islamic Fiqh since 1998 at Jamia Darul-Uloom, Karachi, Pakistan. Dr. Usmani has also authored various books on Islamic Shariah and especially his book ‘Meezan Bank’s Guide to Islamic banking’ has been the guiding light in the area of Islamic Banking.

Mufti Najeeb Khan is Shariah Advisor at Habib Metropolitan Bank and a leading authority on Shariah compliancy. He holds the notable distinction of having personally overseen the execution of over one thousand murabaha transactions and is keenly familiar with the issues involved in the area of Shariah compliancy related to execution. He delivers talks at a variety of institutes and conferences including the National Institute for Banking and Finance, Jamia Darul Uloom, and the Centre for Islamic Economics. He holds the Alamiyyah and Takhassus from Jamia Darul Uloom.

Mufti Muhammad Zubair Usmani

Mufti Muhammad Zubair Usmani completed his Doctorate in Islamic Finance form Karachi University. He is also the Fazil Takhassus (specialist of Islamic Fiqh and Fatawa) from Jamia Darul Uloom Karachi and is also a research scholar and teacher.

Besides being the Shari’ah Advisor, Muslim Commercial Bank; he is also the member Transformation Commission Sub-committee, State Bank of Pakistan; Islamization of Economic Committee Chamber of Commerce, Karachi; Implementation of Supreme Court Judgment on Riba Committee, Institute of Chartered Accountant of Pakistan and governing body Al-Markaz-ul-Islami, Dhaka, Bangladesh.

Sheikh Essam Ishaq

Sheikh Essam M. Ishaq graduated in Political Science from McGill University, Montreal, Canada. Currently he is teaching Fiqh, Aqeeda and Tafseer courses in Bahrain. He holds the position of Shariah Advisor at Discover Islam, Bahrain and is on the Board of AAOIFI as well as First Islamic Investment Bank.

Sheikh Al-Siddiq Mohamed al-Darir

Sheikh Al-Siddiq Mohamed al-Darir of Sudan is one of the leading Islamic Finance scholars of today. He serves as the head of the Shariah Board at Faisal Islamic Bank of Sudan and Methaq Islamic Insurance Company. He is also a member of the Shariah Council of AAOIFI. He lives in Khartoum, Sudan, where he Dean of the Faculty of Law at Khartoum University.

Sheikh Abdulla Ibn Sulaiman al-Manea

Sheikh Al-Manea of Saudi Arabia is a member of the Shariah Council of AAOIFI. He also serves on the Shariah Boards of Alahli Takaful Company, HSBC, SABB Takaful and others. He is a former judge of the Court of Cassation of Saudi Arabia.

Sheikh Abdel-Rahman Ibn Saleh Al-Atram

Sheikh Al-Atram of Saudi Arabia is chairman of the Shariah Board of Al-Rajhi Investment Corporation and is a member of the Shariah Council of AAOIFI. He has written numerous legal verdicts in his capacity as Shariah Advisor.

Dr. Abdulaziz Khalifa Al Qassar

Dr. AbdulAziz Al-Qassar is a Kuwaiti national holding a Bachelor’s degree in Shari’a from the University of Kuwait, a Masters degree and a PhD degree from the Al-Azhar University in Islamic Jurisprudence (Fiqh). He is currently an assistant professor of the Shari’a College at Kuwait University.

Dr. AbdulAziz is a member in the Shari’a Board of many Islamic financial institutions and banks around the world.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

1. Total investments in non-Shariah compliant business are calculated for each companyand are divided by Total Assets. The resulting ratio should not exceed 33%.

2. If money needs to be invested in a company that deals mainly in halal but also receivesrevenues from side businesses that could be haram, than it should be done with thefirm intention to inform in written and also orally, if possible even in their annualmeetings that the company should not do any haram business generally and particularlywith this investment.

3. The Shareholder/investor needs to check the yearly balance sheet of the companies todetermine to what percentage haram income was received. Based on this he has to givean equal percentage of his profit into charity.

4. All Incomes from non Shariah Compliant Investments are summed and their ratio togross revenue (Gross Sales + Other Income) is calculated. This ratio should be less thanor equal to 5%.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

After the presentation of research and after discussions regarding the purchase and sale of shares in joint stock companies whose core businesses are Shari'ah-compliant but which are involved in riba-based transactions with conventional banks, the Forum has arrived at three conclusions.

The First View

Investing money in such companies is not permissible, as it involves an element of riba. Riba is prohibited, regardless of whether the proportion of loans given or taken is a small or large percentage of the invested wealth, and regardless of whether such loans were engaged during the establishment of the companies or after.This is because, according to the contract of the company, every stockholder assigns the administrators of the company to act as his/her agents, and, according to the Shariah, the acts performed by an agent are considered to be acts of the one who appointed him. And the scholars have explicitly stated that it is not permissible to be involved in contracts that include unlawful elements or that have unlawful consequences.

The Second View

Investing wealth by buying, selling and trading stocks is basically lawful; however riba may enter into such activities. Joint stock companies are a new business format, for they did not in exist during classical times. Due the following considerations, it is sometimes permissible to invest in such companies:

1. Although such companies are partnerships, there are particularities that distinguish them from the partnerships known to the classical scholars. This is because the individual shareholder has little power, as most actions and decisions are collectively taken. Hence, it is not entirely accurate to characterize a shareholder as the principal who has made the company administrators his/her agents, such that he/she has the power to confirm their role, rescind their agency or nullify their transactions. This is a new form of agency (wakalah), and not all of the rules for classical wakalah apply to it.

2. For companies whose core business does not involve unlawful elements, involvement in riba-based transactions with conventional banks is a subject requiring further research. It is considered a subsidiary flaw and not a principal one. To further elucidate this matter, we can refer to the Islamic legal maxim that states, "Things can be excused in subsidiary matters that are not excused in principal matters." Furthermore, the usury-tainted elements are a small percentage of the activities of the companies.

3. In this era, joint stock companies have become a widespread public need, especially for those who do not possess the capabilities to engage in investments with minimum risks. Widespread public need is given the same legal weight as dire necessity in the Shariah. This case falls under the auspices of the legal maxim that says: faced with a choice between two evils, one must choose the lesser of them. This is because there is a scarcity of companies that are truly compliant with the rules of the Shariah.

4. The scholars who have permitted the participation in such companies have stipulated a further condition, i.e. the investors must purify the profit earned by expending the illicit portion in charity or for the public good. They should also strive to change the activities of the company toward Shariah compliance, each person in proportion to his capacity. In addition, precautionary rules should be in place to confirm that the portion of interest involved in those transactions really is minor.

5. It must also be confirmed that the actual assets and benefits of the companies are greater than the debts.

Third View

It is permissible to participate in such companies if their activities are conducted for the public interest, i.e. [to provide a good or service that] all or a majority of the people need. It is also permissible to buy, sell and trade the shares of such companies, if the purpose of trading it is to earn profit from the value of the share and not from quarterly dividends, keeping in mind the Shariah rules that govern trading in company shares that were mentioned in the second view.

A mixed company is one where its core activities are permitted by Shariah, although there are some other activities that may contain a small extent of prohibited elements. For mixed companies, the SAC carries out an analysis with additional considerations before including these companies in the list of Shariah-compliant securities. These considerations are–

(a) the core activities of the company must be activities which are not against the Shariah principles as outlined in the four primary criteria (that were explained earlier). Furthermore the haram element must be very small compared to the main activities;(b) public perception of the image of the company must be good; and(c) the core activities of the company have importance and maslahah (benefit in general) to the Muslim ummah and the country, and the haram element is very small and involves matters such as `umum balwa (common plight), `urf (custom) and the rights of the non-Muslim community which are accepted by Islam.

THE STATUS OF MIXED COMPANIES ACCORDING TO SHARIAH

The Involvement of Muslims in the Purchase of Equity

The existing structure of a company enables its majority shareholders to control it. This means that Muslims can control a company by being the largest shareholders of the company. This is a strategic and important matter that needs to be understood by the Islamic community. At the same time, a question that will possibly arise is that the transfer of the company’s control to Muslims may not necessarily solve the problem of prohibited activities. Sometimes, even though the ownership of the company has changed hands, the prohibited activities still carry on. This depends on the extent of the Muslim community’s observance of the religion’s commandments and prohibitions, and the presence of fasad al-zaman.335

The question of having prohibited activities in a company is not something new. In fact, it has been discussed by contemporary Muslim scholars likeAl-Khayyat. He gives the example for riba, where certain companies arei nvolved in contracts with riba for business transactions conducted by the company’s management. He separates the practice of riba by the company’s management from the company’s main activities. The sins are therefore borne by the company’s management as they are not part of the company’s main activities.336 Nevertheless, the prohibited status of the company is clear if the core activity is prohibited, like riba-based financial services, gambling, production of liquor, etc.

Situation of Mixed Companies

A question arises when a company’s core activity is permissible but at the same time it has other prohibited activities. For example, a big company whose core activity is the production of industrial goods, but has a subsidiary company whose activity involves riba. This activity occurs within the company’s group, and provides loans to the subsidiaries and the holding company as a source of financing for their business activities.

An example of another mixed company is a large company whose core activity is real estate but which has a subsidiary company that operates a hotel or resort where liquor is sold within its premises. What is the status of this company according to Shariah? Is the core activity which is more significant not taken into consideration to permit Muslims to invest in the company? Whereas the permissible activity benefits the public much more compared to the prohibited activity which has minimal benefits.

The form of prohibited activity in the first case is more for financing the company’s purchase of machinery, equipment and others. The form of prohibited activity in the second company is to provide a service to non- Muslims.

Opinions of Past Islamic Jurists

There are some discussions by Islamic jurists in classical works on Islamic jurisprudence which are related to the issue of mixed companies. The discussion looked at the status of companies jointly owned by Muslims and non-Muslims. They touched on a situation where the non-Muslim partners carry out riba-based activities and trading of liquor, which are prohibited for Muslims. Nevertheless, Islam recognises the rights of the non-Muslims. Islam classifies this matter as mal for them.337 Islam has also ruled that its followers cannot damage or violate the assets of the non-Muslim community even when the said assets are prohibited for Muslims. Due to the existence of such a situation, there are different views among past Islamic jurists with regards to permitting the establishment of such a company in Islam.

The next issue also addressed by the Islamic jurists concerns companies owned by Muslim partners but where one partner carries out a prohibited activity, for example, riba. The situation comes about because this partner is not that observant about religious and moral practices. A matter such as this also gives rise to a difference of opinion among the past Islamic jurists because it was related to the principle about a person’s sins not being transferable to another and also the principle of muamalat transactions being generally permissible. It means that we are allowed to practise muamalat among fellow Muslims who may be faithful or fajir338 or between Muslims and non-Muslims or vice-versa.

The past Islamic jurists did not make religion a condition for incorporating a company except when it concerns a mufawadhah company.339Group of Islamic Jurists That Permit Mixed Companies

Some Islamic jurists believe that it is permissible for Muslims to partner non-Muslims in business, although it is not encouraged. The Islamic jurists were from the Syafi`i Mazhab, and some from the Hanafi, Maliki and Hanbali Mazhab.340 Their arguments were based on qiyas where both partners qualify to become official representatives. Thus they should run the mufawadhah company complying with how the mufawadhah company was formed between the Muslim and non-Muslim. Subsequently, both parties (Muslim and non-Muslim) qualify to carry out the work of the company on their own, even though they both differ on what is permissible and prohibited in carrying out an activity. According to the Islamic jurists, Muslims cannot carry out prohibited activities, such as those connected with riba and liquor trading, while there are no restrictions on the non-Muslims. The same religion need not be present in a mufawadhah company. Islam allows a mufwadhah company to be formed between Majusians and the kitabis (Jews and Christians) although the religions of both parties differ. Majusians worshipped fire and their altar was considered mal, whereas the kitabis did not have the same practice.341

Group of Islamic Jurists That Prohibit Mixed Companies

Imam Hanafi and Muhammad were from among the early generation of the Hanafi Mazhab who did not believe it was permissible for Muslims to collaborate with non-Muslims through mufawadhah. This was because Islamic and non-Islamic activities differ. What was permissible for non-Muslims was considered mal such as liquor and pork, which were prohibited for Muslims.

Rationale Permitting the Inclusion of Mixed Companies in the List of Shariah-compliant Securities

Views of Many Islamic Jurists Permitting

Based on the views of many Islamic jurists,342 the approach towards permitting Muslims to invest in the shares of companies with a mix of permissible and prohibited activities is justified. This is because the esteemed Islamic jurists did not prohibit such companies when evaluating the status of companies jointly owned by both good Muslims and fajir Muslims, even though the companies were later found to carry out prohibited activities, such as riba and the sale of liquor.

Past Islamic jurists also discussed the issue of funding from both permissible and prohibited sources. The majority of the Islamic jurists allowed such transactions involving permissible and prohibited funding, provided the ratio of permissible funds is more.

Izz al-Din bin Abd Al-Salam said:

Meaning: “If the permissible money is more, that is, one dirham of prohibited money is mixed with one thousand of permissible money,then the transaction is allowed.”343

Al-Kasani also said:

Meaning: “Everything will be tainted by what is prohibited, but if the larger part is halal, then trade is allowed.”344

Ibnu Taimiyyah also gave the same view with regards to funds where permissible and prohibited assets are mixed:

Meaning: “Should the permissible be more, then a business transaction will not be judged as prohibited… and should one’s wealth be found to have a mixture of the permissible and prohibited, then the permissible element will not be prohibited; on the contrary, the owner is allowed to take according to the permitted ratio.”345

Gharar346 and ghabn347 are two negative elements that can ruin a contract. However, should it occur in a small amount, Islamic jurisprudence considers it normal and will not adversely affect the contract’s goodwill. In other words, the miniscule presence of these two negative elements in a contract is excusable. The same situation can happen in a mixed company where the permitted activity is more than the prohibited activity. Therefore, the nature of such a company is within the permissible bounds of the Islamic jurisprudence and is excusable.

The Principle of `Umum Balwa

Most of the small prohibited matters in today’s business transactions can be categorised as `umum balwa.348 Such matters, as earlier explained, are included among those matters excusable under Islamic jurisprudence.

The Principle of al-Dharuriyat al-Khamsah

With reference to the masalih dharuriah,349 Syara` has listed hifz al-mal350 as a masalih dharuriah that must be regarded very seriously. The question of the Muslims’ economic strength and integrity is an important factor in the continuity and progress of Muslims. Large companies whose core activity is permissible, should not be cast aside by Muslims just because there is a small number of activities that do not comply with the Shariah requirements. If Muslims are involved in these companies, they can concentrate their capital in permissible activities that outweigh those which are prohibited. Besides, this will benefit Muslims as they can participate in the economy, especially in companies that are important and strategic to them.

Change in Hukm (Ruling) Due to Change in Human Behaviour

Changes in environment and location greatly affect the consistency of rulings through the ages. This is because Islam is a religion that is suitable for meeting human needs at any time and any place. To meet these demands, changes in rulings always take place. Every ruling that is endorsed has a specific aim in meeting the call for justice, obtaining maslahah, and averting damage and destruction. Apart from the factors of time, place and environment, the change in ruling is also related to the changing morality of Muslims. Based on the history of Islamic jurisprudence, there were many rulings that were amended due to changes in time, place and environment. The Islamic jurisprudence states a maxim of Islamic jurisprudence as follows:351

Meaning: “It cannot be denied that a change in ruling is caused by a change in time.”

Even then, changes are confined to rulings that are ijtihadi in nature.

A ruling can change as a result of a lack of abstinence and weak adherence to religious commandments as a whole at a place or what is known as fasad al-zaman. Besides that, a ruling can also change due to changes in the economic system or what is known as asalib iqtisadiyah because if rulings do not change with the times, it ceases to be practical. As a result, the lack ofchanges will make the Shariah appear static and obsolete because it cannot cope with the prevailing needs, whereas according to Imam Al-Syatibi, nothing is purposeless in Shariah.352

An example of a change in ruling as a result of a change in environment for Muslims is provided by the ruling concerning the payment for teaching the Quran. The early generation of past Islamic jurists ruled that no payment should be given for teaching the Quran and religion. However, with changing times, such duties were required to be appropriately paid. Without such payment, religious education would be neglected because no one would be interested to teach. As a result, nobody would have a deep knowledge of the Quran and the religion, because specialist knowledge would not be available. Because of this, the Islamic jurists later took the approach of permitting the acceptance of payment, which was originally not permitted, in line with the changing times and environment.353

The reason for deciding on a ruling that differs completely from its original ruling, that is from not permitting to permitting, is so that the religious maslahah will continue to be preserved. If the ruling is not updated in line with the changing times and environment, religious study and its propagation would almost certainly be completely neglected. This contradicts the requirement of the Shariah which wants such noble efforts to continue. Thus, maintaining an old ruling which has no maslahah is contradictory to Shariah principles.

Response to Views Disputing the Permissibility of MixedCompanies

There are parties opposed to the inclusion of a mixed company in the list of Shariah-compliant securities due to its non-compliance with the maxim which means that if the permissible is mixed with the forbidden, then it should be ruled as forbidden. They are of the view that such a mixed company should not be at all included in list of Shariah-compliant securities.

It must be understood, however, that there are strong arguments to rebut the above viewpoint, as follows:

(a) Weakness of the maxim

The authenticity of the above maxim is also disputed. It cannot be denied that this maxim is suitable for certain cases, such as the mixing of slaughtered animals carried out by Muslims and the Majusi but it is not suitable in the case of mixed companies. Al-Sayuti mentions that this maxim is based on a hadith of the Prophet s.a.w.:

Meaning: “Where there is a mix of the permissible and the forbidden, then it becomes forbidden.”

However, Islamic scholars debated on the status of this hadith. According to al-Hafiz Abu Al-Fadhl al-`Iraqi, this hadith is of unknown origin. Meanwhile, al-Subki quoted al-Baihaqi that the hadith was conveyed by Jabir Al-Ja`fiy, someone of weak status who had conveyed it from al-Sya`biy who, in turn, conveyed it from Ibn Mas`ud in the form of a munqati` (hadith of a broken reporting sequence);354

(b) Existence of an opposing maxim

There is an opposing maxim mentioned in Al-Asybah355 at the end of the discussion of the maxim . The maxim concerned is which means: “That which is forbidden does not render forbidden that which is permissible.” This maxim was formulated based on the hadith warid found in Sunan Ibn Majah and Al-Darqutniy conveyed from Ibn Omar; and

(c) Maslahah

Apart from the weakness of the maxim stated above, maslahah is also a strong argument for permitting mixed companies. It is further strengthened by arguments pertaining to the existence of the `umum balwa, fasad al-zaman, `urf, asalib iqtisodiyyah situations and the recognised rights of non-Muslims.

Because of that, the maxim as presented by Izz al-Din `Abd al-Salam356 regarding the mix of good and bad should be applied:

Meaning: “Where there is good and bad together, then it needs to be reviewed…”

If such an action is taken, and hopes of achieving good are more positive, and the disadvantage can be overcome and averted, then such an action should continue. This takes into consideration the command of Allah s.w.t.:

Meaning: “So fear Allah s.w.t. as much as you can…” (Surah al-Taghabun: 16)

On the contrary, if the bad cannot be overcome and the good cannot be obtained because the bad outweighs the good, then the decision not to proceed with the planned action is wiser to avoid the bad.BASIS FOR ESTABLISHING THE BENCHMARK

To determine the status of a mixed company as a Shariah-compliant company/ securities, it is necessary to draw up specific benchmarks to ensure that prohibited elements are minimal and related to those excused by Syara`. In other words, the presence of prohibited elements does not affect the permissible part which is larger and more important.

The esteemed past Islamic jurists did not draw up a benchmark for determining the status of a mixed company. This, therefore, gives modern Islamic jurists the opportunity to think about such a benchmark.

The SAC considered a number of benchmarks as a basis that can be considered as ihtiyat (precautionary measure) that gives caution in classifying a mixed company under the permissible category as stated by Ibnu Subki in al-Asybah wa al-Naza’ir, that is, “to rule as prohibited something that is a mix of the permissible and the prohibited is ihtiyat and it is not necessarily prohibited.”357

The SAC took into account additional elements like maslahah, `umum balwa, `urf khas min asalib iqtisodiyah,358 fasad al-zaman and huquq ghair muslimin.359 The SAC also looked at numerous fatwa (religious edict from a qualified scholar) which have become exceptions to the maxim which means, if there is a mix of the permissible and the prohibited, then it is ruled as prohibited.

For example, the mixing of slaughtered animals by Muslims and the Majusi is ruled to be totally prohibited.360 This fatwa is in line with the maxim because such a mixed item is prohibited in essence. Whereas if the essence of such an item is not prohibited, but is prohibited for other reasons, then it needs to be scrutinised differently.

Ibnu Qayyim in his Bada’i` al-Fawa’id361 divided the nature of prohibited assetsinto two groups:

(a) Prohibited because of its zat (nature), for example liquor, pork, etc. This relates to the case of mixing slaughtered animals mentioned earlier;and(b) Prohibited due to other reasons, for example, the means by which money is earned is prohibited. Money, in essence is not prohibited, but if money is obtained as a result of theft, robbery, cheating, etc.;

then this money is prohibited. This is similar to the securities of a mixed company, because securities in essence is not prohibited. It becomes prohibited because the activities of such companies produce profits which can be distributed through dividends.

An exceptions to the maxim is, for example, the fatwa concerning silk mixed with common thread. Silk cloth is prohibited to be worn by men as in the hadith of the Prophet s.a.w.:

Meaning: “The Prophet s.a.w. took a piece of silk and placed it on his right. He took some gold and placed it on his left. Then he said: Both these things are prohibited unto men among my followers, but permissible for the women.”362

However, it can be worn by men if the ratio of silk thread mixed with the common thread does not exceed 50%. The benchmark concerning such a mixture is 50%. In other words, if the mixture of silk does not exceed 50%, the cloth may be worn by men. The question is whether such a benchmark is suitable for application in the context of mixed securities. However, from the viewpoint of asset characteristic, both cases are essentially similar, as they appear to be assets that are not prohibited in essence.

Benchmark of One-third

The Prophet s.a.w.’s condition of 1/3 (33.33%) is a very generous limit which can also be considered for use as the benchmark for mixed companies. This statement can be supported by the legacy of Sa`ad Ibn Abi Waqas who wanted to leave his assets as alms as in the following hadith:

Meaning: “One day, the Prophet s.a.w. visited Sa`ad bin Abi Waqaswho was ill. Sa`ad expressed to the Prophet s.a.w. his feelings that his illness was entering the last phase and that death was near. He asked for the Prophet s.a.w.’s opinion on giving his assets away as alms for he had only one daughter to inherit his wealth. Therefore, he wished to give as alms 2/3 of his property. However, the Prophet s.a.w. stated his objections. Then Sa`ad asked whether he could give away 1/2 of his property. The Prophet s.a.w. still said no. The Prophet s.a.w. then said: 1/3 (of Sa`ad’s property to give away as alms) is enough, that too is still too much. Verily, to leave your heir wealthy is far better than to leave you heir impoverished and dependant on other people’s charity.”363

Based on the Prophet s.a.w.’s words, 1/3 or 33.33% “is enough” and can be used as a guideline for the basis of formulating a benchmark. The question is whether this benchmark is suitable to be used for mixed companies, because it relates to the bequest of property and giving of alms. Even so, it cannot be denied that it can be used as a benchmark to set the upper limit of a mixture because an amount exceeding the percentage set will be considered excessive.

Benchmark Based on Ghabn Fahisy

The practice of ghabn fahisy364 in trading is not allowed in Islam. However, if the ghabn is small then it is excused. The meaning of ghabn is making profits which exceeds market price. The theory of ghabn fahisy describes gains which exceed the market price achieved through cheating. If ghabn happens without any act of cheating, then it is permitted.

The activity of tanajusy,365 that is manipulation, if accompanied by the element of ghabn fahisy can give buyers the right to cancel the sale and purchase contract, according to the majority of Islamic jurists from the Maliki, Syafi’i and Hanbali Mazhab.366 This shows that if ghabn fahisy is accompanied by the element of tanajusy, then it is not permissible. However, if it occurs below the benchmark, it is excused. The Hanafi Mazhab ruled that the upper limits for ghabn fahisy are as follows:

(a) 5 per cent for ordinary goods;(b) 10 per cent for animals, including those used for riding; and(c) 20 per cent for fixed assets.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

11. Before analyzing the above-mentioned arguments, let us undertake an objective study of the verses of the Holy Qur'an about riba. There are four different sets of verses which were revealed on different occasions.

12. First, in Surah Ar-Rum, a Makkan Surah wherein the term riba finds mention in the following words:

"And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah." [Ar-Rum 30:39]

13. The second verse is of Surah Al-Nisaa where the term riba is used in the context of sinful acts of the Jews in the following words:

"And because of their charging riba while they were prohibited from it." [An-Nisaa 4:161]

14. In the third verse of Surah Al-i-'Imran the prohibition of riba is laid down in the following words:

"O those who believe do not eat up riba doubled and redoubled." [Al-i-'Imran 3:130]

15. The following set of verses is found in the Surah Al-Baqarah in the following words:

"Those who take interest will not stand but as stands whom the demon has driven crazy by his touch. That is because they have said: 'Trading is but like riba'. And Allah has permitted trading and prohibited riba. So, whoever receives an advice from his Lord and stops, he is allowed what has passed, and his matter is up to Allah. And the ones who revert back, those are the people of Fire. There they remain for ever.

Allah destroys riba and nourishes charities. And Allah does not like any sinful disbeliever. Surely those who believe and do good deeds, establish Salah and pay Zakah, have their reward with their Lord, and there is no fear for them, nor shall they grieve.

O those who believe, fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful of a day when you shall be returned to Allah, then everybody shall be paid, in full, what he has earned. And they shall not be wronged." [Al-Baqarah 2:275-281]

Historical Analysis of the Verses of Riba

16. Before proceeding further it will be appropriate to understand these verses in their chronological order.

Surah Ar-Rum

17. First of these verses is a part of Surah Ar-Rum which was undisputedly revealed in Makkah. This verse is not of prohibitive nature. It simply says that the riba does not increase with Allah i.e. it carries no reward in the Hereafter. Many commentators of the Holy Qur'an are of the opinion that the word riba in this verse does not refer to usury or interest. Ibn Jarir Al-Tabari (D310 AH), the most famous exegete of the Holy Qur'an, reports from Ibn Abbas, Radi-Allahu anhu, and several Tabi'in like Saeed Ibn Jubair, Mujahid, Tawoos, Qatadah, Zahhak, and Ibrahim Al-Nakha'i that the word riba in this verse means a gift offered by someone to a person with the intention that the latter will give him in return a greater gift. However, some commentators of the Holy Qur'an have taken this word to mean usury. This view is attributed to Hasan Al-Basri as reported by Ibn Al-Jawzi. If the word riba used in this verse is taken to mean usury according to this view, which seems more probable, because the word of 'riba' used in other places carries the same meaning, there is no specific prohibition against it in the verse. The most it has emphasized is that riba does not carry a reward from Allah in the Hereafter. Therefore, this verse does not contain a prohibition against riba. However, it may be taken as a subtle indication to the fact that the practice is not favored by Allah.

Surah An-Nisaa

18. The second verse is of Surah al-Nisaa where, while listing the evil deeds of Jews, it is mentioned that they used to take riba which was prohibited for them. The exact time of this verse is very difficult to ascertain. The commentators are mostly silent on this point, but the context in which the verse was revealed suggests that it would have been revealed before the 4th year of Hijra. Verse 153 of the Surah Al-Nisaa is as follows:

"The People of the Book ask you to bring down upon them a Book from the heaven." [An-Nisaa 4:153]

19. This verse implies that all the forthcoming verses were revealed in answer to the argumentation of the Jews who came to the Holy Prophet, Sall-Allahu alayhi wa sallam, and asked him to bring down a Book from the heavens like the one given to the Prophet Musa (Moses), alayhi salam. It means that this series of verses was revealed at a time when Jews were abundantly present in Madina and were in a position to argue with the Holy Prophet, Sall-Allahu alayhi wa sallam. Since most of the Jews had left Madinah after 4th year from Hijra, this verse seems to have been revealed before that. Here the word riba undoubtedly refers to usury because it was really prohibited for the Jews. This prohibition is still contained in the Old Testament of the Bible. But it cannot be taken as a direct and explicit prohibition of riba for the Muslims. It simply mentions that riba was prohibited for the Jews but they did not comply with the prohibition in their practical lives. The inference, though, would be that it was a sinful act for the Muslims also, otherwise they had no occasion to blame the Jews for the practice.

Surah Al-i-'Imran

20. The third verse is of Surah Al-i-'Imran which is estimated to have been revealed sometime in the 2nd year after Hijra, because the context of the preceding and succeeding verses refers to the battle of Uhud which took place in the 2nd year after Hijra. This verse contains a clear prohibition for the Muslims and it can safely be said that it is the first verse of the Holy Qur'an through which the practice of riba was forbidden for the Muslims in express terms. That is why Hafidh Ibn Hajar Al-Asqalani, the most famous commentator of Sahih Al-Bukhari, has opined that the prohibition of riba was declared sometime around the battle of Uhud. Some commentators have also pointed out the reason why this verse was revealed in the context of the battle of Uhud. They say that the invaders of Makkah had financed their army by taking usurious loans and had in this way arranged a lot of arms against Muslims. It was apprehended that it may induce the Muslims to arrange for arms on the same pattern by taking usurious loans from the people. In order to prevent them from this approach the verse was revealed containing a clear-cut prohibition of riba.

21. That the prohibition of riba had been imposed sometime around the battle of Uhud finds further support from an event reported by Abu Dawood in his As-Sunan from the noble companion, Abu Hurairah, Radi-Allahu anhu. The report says that Amr ibn Aqyash was a person who had advanced some loans on the basis of interest. He was inclined to embrace Islam but was reluctant to do so on the apprehension that after embracing Islam he would lose the amount of interest and therefore he delayed accepting Islam. In the meantime the battle of Uhud broke up whereby he decided not to delay embracing Islam and came to the battlefield, started fighting on behalf of Muslims and achieved the rank of a Shaheed (martyr) in the same battle.

22. This tradition clearly shows that riba was prohibited before the battle of Uhud and it was the basic cause for the reluctance of Amr ibn Aqyash to embrace Islam.

23. The fourth set of verses is contained in Surah Al-Baqarah where the severity of the prohibition of riba has been elaborated in detail. The background of the revelation of these verses is that after the conquest of Makkah, the Holy Prophet, Sall-Allahu alayhi wa sallam, had declared as void all the amounts of riba that were due at that time. The declaration embodied that nobody could claim any interest on any loan advanced by him. Then the Holy Prophet, Sall-Allahu alayhi wa sallam, proceeded to Taif which could not be conquered, but later on the inhabitants of Taif who belonged mostly to the tribe of Thaqif came to him and after embracing Islam surrendered to the Holy Prophet, Sall-Allahu alayhi wa sallam, and entered into a treaty with him. One of the proposed clauses of treaty was that Banu Thaqif will not forego the amounts of interest due on their debtors but their creditors will forego the amount of interest. The Holy Prophet, Sall-Allahu alayhi wa sallam, instead of signing that treaty simply wrote a sentence on the proposed draft that Banu Thaqif will have the same rights as the Muslims have. Banu Thaqif having the impression that their proposed treaty was accepted by the Holy Prophet, Sall-Allahu alayhi wa sallam, claimed the amount of interest from Banu Amr Ibn-al-Mughirah, but they declined to pay interest on the ground that riba was prohibited after Islam. The matter was placed before Attaab ibn Aseed, Radi-Allahu anhu, the governor of Makkah. Banu Thaqif argued that according to the treaty they are not bound to forego the amounts of interest. Attaab ibn Aseed, Radi-Allahu anhu, placed the matter before the Holy Prophet, Sall-Allahu alayhi wa sallam, on which the following verses of Surah Al-Baqarah were revealed:

"O those who believe, fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged." [Al-Baqarah 2:278-279]

24. At that point of time Banu Thaqif surrendered and said we have no power to wage war against Allah and His Messenger.

The Time of Prohibition of Riba

25. This study of the verses of the Holy Qur'an in the light of their historical background clearly proves that riba was prohibited at least in the 2nd year of Hijra. It is rather doubtful whether or not it was prohibited before that. If the word riba in the verses of Surah Ar-Rum is taken to mean usury as interpreted by a number of authorities, it would mean that the practice of riba was discarded by the Holy Qur'an in Makkan period. That is why a number of scholars are of the view that riba was never allowed in Islam. It was prohibited from the very beginning but the severity of prohibition was not emphasized during that period because Muslims were being persecuted by the infidels of Makkah and their major focus was on establishing and defending the basic articles of faith and they had no occasion to indulge in the practice of riba. Be that as it may, the fact that cannot be denied is that the express prohibition of riba was undoubtedly imposed in the 2nd year of Hijra.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

Q: Respectable Mufti Saheb: Kindly forgive me for intruding on your precious time and specially during the Holy Month of Ramadan when you will be too busy. Also please forgive me in addressing this letter in English as perhaps I may not be able to express myself more clearly in Urdu.

You have been making research on various Islamic laws and principles which remain not clear in minds of people like me who have no knowledge or study of matters. As a learned Scholar and having vast experience and knowledge of both Islamic Laws and practices of modern period, I hope to get a reply of my query from you. Matter is the same old one - What is the position of Bank interest or profit - by whatever name it is called according to Shariah. To express whatever I understand I give below my feelings:-

1. Authentic definition of 'Riba' which has been declared by Allah and Holy Prophet (S.A.W) in Qur'an as "Haram "?

2. As far as I can see the charges of profit or interest one expects to get in return of his providing money to a needy person to fulfill his requirement of daily needs in the absence of any source to fulfill these is 'Riba' but any such return on money used for business, to earn more money, should not come under the definition of 'Riba '.

3. Generally it is said that if rate of profit is fixed it comes under definition of 'Riba' and becomes 'Haram' but if it linked with profit earned, it is not 'Riba'. In my humble opinion this position is different. For example 'A' has got Rs. 100,000/= and he constructs a shop and gives it on fixed monthly rental for business. Or if he gives Rs. 100,000/= in cash for another business. What is the difference as far as 'A' is concerned. He is parting with his money, in one case he is giving it in kind and in another case in cash. Why return in both the cases be distinguished? Shop's rent is not dependent on profit or loss to the Shopkeeper. If rent paid for shop is 'rental for shop why fixed return on cash is not 'rental of money'?

This letter is just to clarify the position and correct my thinking and in no way to convert Haram into Halal. After all after 15 Centuries, our concept should be clear at least on basic principles of our faith and we should not find excuses for justification of our (mis) deeds.

I shall be grateful to have your considered opinion for my guidance at your earliest convenience.

(M.A. Siddiqui, Operations Director, Matiari Sugar Mills Limited)

A: I received your letter dated 27th January 1997 and apologize for the delay in replying it. It was due to my overwhelming involvements both here and abroad. I hope you will forgive me for this delay. The questions you have posed have been discussed thoroughly in a number of books written on the subject both in Urdu and English. If you wish to benefit from Urdu writings I would advise you to read the following books:"The Questions of Interest: Mufti Shafei (R.A.)"

"Islam & Modern Business: Mufti Taqi Usmani”

You may also benefit from the book of Dr. Anwar Iqbal Qureshi, titled" Islam and the Theory of Interest ".

I think if you want to be very clear on this point you should at least study these books. However, I am giving here very brief answers to your questions:

1) The legal definition of any prohibited act is seldom given in the Holy Qur'an itself. For example, wine has been prohibited but no definition of wine has been given. Similarly, adultery, telling lies, back-biting and bribery have been prohibited by the Holy Qur'an but the definitions of these acts have not been provided. Reason for it is that all these concepts were too clear in the minds of the addressees to need any such definition. The same is the case of Riba. The concept of Riba was widely recognized among the addressees of the Holy Qur'an and it is that concept which is reflected in the legal definition provided for Riba either in the Hadith or in the later literature of Islamic jurisprudence. According to this definition any transaction of loan where the payment of an additional amount on the principal is made conditional to the advance of such loan is called Riba.

2) There is no distinction in Shariah between advancing a loan to a needy person or advancing it to a business concern. The principle is that the person who advances money to another person should clearly decide whether he wishes to assist him or he wants to share in his profits. In the former case, he should withdraw from any claim of additional amount (in the form of interest) while in the latter case he should share his loss also. It is not permitted by Shariah that he claims profit but does not agree to share his loss.

Another point which needs attention here is that the distinction between a needy and a rich person in commercial matters is totally irrelevant. If a Shopkeeper sells a commodity to a poor person with a margin of profit which is not excessive nobody can say that this transaction is Haram because of the poverty of the purchaser. One can say that it would be more advisable for the Shop Keeper to give him the commodity either as a charity or at cost without charging a profit but it cannot be said that the marginal profit charged here is not Halal. If charging an additional amount on a loan is not in itself Haram then the same analogy should have been applied here meaning thereby that if a creditor charges a marginal interest on the loan he has advanced to a poor person it should not be condemned or declared as Haram, but even the modernists who hold the commercial interest as Halal admit that this kind of transaction is Riba and prohibited by the Holy Our'an. It proves that the basis of the prohibition is not linked to the poverty of the debtor. Had it been so, charging profit from a poor person would also have been declared as Haram. Therefore, the only basis for distinction between a sale and a transaction of Riba is that the former relates to commodity while the latter relates to money.

3) There are several differences between interest and rent. The basic principle of Shariah is that profit is justified where a person has undertaken the risk of the thing given to another person. In a transaction of loan, after advancing money, the creditor does not take any risk of the money because if the money is lost in the hands of the debtor after he has taken delivery thereof the debtor is bound to repay the loan. As the creditor did not take any risk of it, therefore he cannot charge additional profit thereon. While, in the case of a property leased out to the Lessee, the Lessor has taken the risk of the property, If the property is destroyed, he will bear the loss, therefore, it is justified for him to-charqe rent from the Lessee. Another difference is that the property is always subject to depreciation while money does not depreciate. Therefore, charging of rent in the first case is justifiable while it is not so in the later case.

I hope that these brief answers will at least explain the basic concepts. However, for greater details you should study the books I have referred to above.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

By Mufti Taqi UsmaniPosted: 2 Rajab 1424, 30 August 2003--------------------------------------------------------------------------------Q.) I would like to know what is the best course a person can take to improve his knowledge of Islamic Finance. I am currently aware of Netversity and one offered by the Islamic Institute here in the UK. Does Mufti Taqi offer courses in Karachi? Also where is the best place to gain information regarding employment in this area? Thank you very much in advance, and may Allah reward your noble efforts. [Salem Patel]

A.) You can read my books "An Introduction to Islamic Finance" and "Historic Judgment on Interest" published by Idaratul Maarif Darul Uloom Karachi. Darul Uloom Karachi has a "Centre of Islamic Economics" which organizes courses on Islamic Finance from time to time. In this regard you may contact Mr. Muhammad Imran, CEO of the Centre at the email address: cie786@yahoo.com.

I have attempted to give examples of some financial contracts which can be used for various purposes - for risk reduction or hedging and speculation involving options, futures, and swaps; and direct and indirect investment in equity. Kindly let me know to what extent these are permissible under Islam.

FUTURES CONTRACTS ON STOCK EXCHANGE

1. An example of a future contract in shares:

i) Two individuals, A and B enter into a contract on 1st January 1996 under which A would sell a share of company X at a price of $1 00 to B after an expiry of six months. B has an obligation to purchase at this price irrespective of the market price on 31 st June 1996.

ii) If the object of transaction is any commodity, or gold, or silver, or currency and not share as in the above three cases, in what way the validity or otherwise of the contract is affected?

Please note that the non-transferability of rights and obligations severely limits the possibility of speculation on Futures Exchanges. A commonly held belief is that future contracts are prohibited when they are used for speculation. Does this imply that futures contracts are permissible when these are used for hedging?

A leading Islamic Bank's Annual Report shows that the bank entered into futures transaction for hedging its foreign currency risk. One view is that such hedging may be justified in view of extreme volatility in currency markets. (in my correspondence with a top executive of the said bank, I was given the reference of a book, Islamic Law and Finance by Chibli Mallat, I still do not have access to this book).

2. An example of an option contract in shares:

i) Two individuals, A and B enter into a contract on 1st January 1996 under which A grants a right to B without any obligation on B's part. B under the contract, gets a right to purchase a share of Company X from A any time on or before 30th June 1996 at a price of $100 (irrespective of the market price on the day of purchase). B, however, does not have any obligation to purchase.

A accepts a consideration of $5 from B for granting him his right without obligations. This is called a call option in shares.

ii) A and B enter into a contract on 1st January 1996 under which A grants a right to B without any obligation on B's part. B, under the contract, gets a right to sell a share of Company X to A at any time on or before 30th June 1996 at a price of $100 (irrespective of the market price on the day of purchase). B, however, does not have any obligation to sell.

A accepts a consideration of $5 from B for granting him this right without Obligations. This is called a put option in shares.

iii) A and B enter into a contract on 1st January 1996 by which A sells 100 shares of Company X at a price of $1 00 per share. The transaction is settled with exchange of cash for the shares. A also grants a right to B under which B can sell back the shares to A on the expirty of six months, that is, 30th June 1996 at a price of $120 per share. This right however, is cancelled if the price of the share increases beyond $120 and remains at that level for 21 consecutive days before 30th June 1996.

Unlike the previous two instances of transactions in pure options, the above is a case of option as an additional feature of an equity sale and purchase.

iv) If the object of transaction is any commodity, or gold, or silver, or currency and not share as in the above three cases, in what way the validity or otherwise of the contract is affected?

3. An example of an Islamic swap used by some Islamic banks:

Two banks enter into an agreement to exchange deposits for a period of six months in different currencies on 1st January 1995 at the prevailing exchange rate. Bank A exchanges Rupees 30 million with Bank B for US Dollars one million, and the Rupee-Dollar exchange rate prevailing on the date is 30:1. During these six months, each bank utilizes the depsites it received at its own risk. At the end of six months, Bank A pays back one million dollars to Bank B and receives Rupees 30 million from it irrespective of the Rupee-Dollar exchange rate prevailing on June 30, 1995, for example, the Rupee-dollar exchange rate might have become 35: 1 or the Rupee-dollar exchange rate might have become 35: 1 or 25: 1 on June 30, 1995. Is this contract Islamically permissible?

4. Examples of direct and indirect investment in equity:

i) Company A raises funds by selling shares and interest-bearing bonds and invests all funds in predominantly halaal and profitable activities. Is it permissible to purchase shares of Company A for an individual?

ii) Company B raises all its funds by selling shares and invests all its funds in shares of Company A above and similar companies. Is it permissible for an individual to purchase shares of Company B?

iii) Company X sells financial securities on which it promises dividends at a rate of 10 per cent on its total sales during the year. Is it permissible to purchase these securities where dividends are paid as a predetermined proportion of sales revenue and not profits?

Answers are as follows:

1. i) This is an example of a futures transaction. The futures transactions as in vogue in the stock and commodities markets today are not permissible for two reasons: firstly, it is a well recognized principle of Shari'ah that sale or purchase cannot be effected for a future date. Therefore, all forward and futures transactions are invalid in Shari'ah. Secondly, because in most of the futures transactions delivery of the commodities or their possession is not intended. In most cases, the transactions end up with the settlement of difference of prices only, which is not allowed in Shari'ah.

More detailed discussion on the Shari'ah aspect of futures transactions may be found in my Arabic book; "Discussions of Contemporary Juristic Issues" under the heading "Futures Contracts in Commodities".

ii) As futures transactions are not permissible, no rights or obligations can emanate there from. Therefore, the question of transferring these rights and obligations does not arise.

iii) Futures transactions, as explained earlier, are totally impermissible regardless of their subject matter. Similarly, it makes no difference whether these contracts are entered into for the purpose of speculation or for the purpose of hedging.

2. i, ii, iv, & v.) According to the principles of Shari'ah, an option is a promise to sell or to purchase a thing at a specific price within a specified period. Such a promise in itself is permissible and is morally binding on the promisor. However, this promise cannot be the subject matter of a sale or purchase. Therefore, the promisor cannot charge the promisee a fee for making such a promise.

Since the prevalent options transactions in the options market are based on charging fees on these promises, they are not valid according to . Shari'ah. This ruling applies to all kinds of options, no matter whether they are call options or put options. Similarly, it makes no difference if the subject matter of the option sale is a commodity, gold or silver, or a currency; and as the contract is invalid ab-initio, the same cannot be transferred.

iii) This contract has two aspects; Firstly, if the option of selling back the shares to A has been made a precondition of the original sale transaction, the whole transaction will be invalid because, according to Shari'ah, a sale transaction cannot accept such a condition. Secondly, if the option is an independent promise without being a precondition for the original sale, no fee can be charged for such a promise as mentioned earlier. Although a complimentary promise of this kind is permissible in Shari'ah, it cannot serve the purpose of the option market.

3. It is one of the principles of Shari'ah that two financial transactions cannot be tied up together in the sense that entering into one transaction is made precondition to entering into the second. Keeping this principle in view, the swap transaction referred to in the question is not permissible because the deposit of one million dollars has been made a precondition for accepting the deposit of 30 million rupees, since both the parties will use the deposits for their own benefit, they are termed in Shari'ah as loans (Qardh) and not as trust (Wadee'ah). Therefore, advancing one loan has been made a precondition for receiving another, which means that two financial transactions are tied up together.

This is my initial opinion about this transaction. However, it needs further study and research.

4. i) If Company A raises funds by issuing shares and interest bearing bonds and invests all funds in predominantly Halaal and profitable activities, the permissibility of purchasing shares of such a company depends on four conditions:

a. All the business activities of the company should be Halaal.

b. The shares of such a company have to be purchased after it has acquired tangible assets like machinery, buildings, raw materials or stock in trade.

c. If it becomes evident from the income statements of the company that a part of its income consists of interest given by the bank on its deposits, that proportion of the dividend must be given in charity.

For example, if the total profit of the company is $100 and 5% of it has accrued through interest received on bank deposits, then 5% of the dividend must be given in charity.

d. The shareholder should express his disagreement over depositing surplus funds in an interest bearing account and raising funds through interest bearing loans. A preferable method would be to object against such interest bearing transactions in the annual general meeting of the company.

If the four conditions are strictly fulfilled, it is hoped that purchasing shares of such a company will be permissible in Shari'ah.

A possible objection which may be raised against this ruling would be that because the company had raised a considerable amount of its funds by issuing interest bearing bonds, a substantial part of its funds is impure according to Shari'ah; therefore, it should not be permissible to participate in such a business. This objection may be refuted on the ground that although taking an interest bearing loan is strictly prohibited in Shari'ah, yet the effect of this prohibition is that the persons responsible for taking such loans will be committing a sin. However, the amounts so borrowed are treated by the Shari'ah as their own. Although they will be liable to punishment in the Hereafter, the money borrowed comes into their ownership and anything purchased by that money will not be treated in Shari'ah as Haraam.

Therefore, if the capital raised by the company consists of some amounts borrowed on interest, it will not render the whole capital impure.

ii) If the four conditions mentioned above are fulfilled it will also be permissible to purchase the shares of Company B which has invested all its funds in the shares of Company A.

iii) It is necessary for the permissibility of Musharakah that the profits of the joint venture are distributed among the partners on an agreed proportion of the actual profit and not in proportion to the sales revenue. Therefore, it is not permissible to purchase the securities issued by Company X.

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

The present day banking system, which has given interest the moral and legal license, is the backbone of the prevalent capitalism.

When Muslim countries became subjugated to west in their economic field, some westernized Muslims in the 19th century, on one side, saw the increasing progress of the west in trade and industry and on the other side saw the shattering economic condition of fellow Muslims states. They also became conscious of the fact that banking is inevitable in the field of trade and industry not only on national level but also internationally. This prompted them to say that only usury is haram (illegal) but not commercial interest because rendering commercial interest haram would pose irresolvable problems to their way up to industrialization and economic progress. They only included usury in the term “Riba” as categorically prohibited in Qura’n and sunnah and freed commercial interest from it calling it totally different from the western concept of interest. Therefore, it was concluded that the prohibition of Riba was restricted to usury while commercial interest was perfectly Islamic.

There are two schools of thought on this issue. A detailed analysis of their arguments is discussed as under:

1. First School:

This school presents two arguments to support their point that only usury (not commercial interest) is prohibited in Islam:

Argument 1

“Riba as practiced during the days of the Prophet was only Usury”

Counter argument

This claim is groundless, since Islam when prohibiting something does not only prohibit one form of it that is prevalent, but all forms that might erupt in future. The changed state does not change the ruling for eg. Qura’n has prohibited the following:

a) Liquor (Khamar): During the time of Prophet its form and the way of production was totally different from that of the present day liquor but the ruling remains unchanged even though the form has changed.

b) Pork (Khinzeer): Irrespective how clean the present day breeding of pigs in high class farms may be, pork will stay prohibited and cannot be rendered halal (legal).

c) Corruption/Immorality (Al Fahsha): Although a lot of sophisticated ways have been developed of this evil from the time of Qura’nic revelations prohibiting it, the ruling stands forever. The same applies to interest and gambling. By claiming that it was in a different form during Prophet’s time does not change its ruling. It remains unchanged just as in case of Khamar, Khinzeer and Al Fahsha.

Argument 2

“Commercial interest did not exist in the days of Prophet ”

Counter argument

This claim is also wrong. If one glances through the Islamic and pre Islamic history of Arabia, it will be evident that the interest type at that time was not restricted to usury but loans were granted for commercial and profitable purposes. To quote some examples:

a) “The tribe of Umro bin Aamir used to take interest from the tribe of Mughairah. At the advent of Islam, Mughairah owed heavy interest to Umro bin Aamir.” In this narration, the transaction of interest between 2 tribes of Arabia have been pointed out who actually operated as trading companies; both tribes were very wealthy. Could it be that 2 wealthy tribes transacted interest just for personal need and expenses? The interest was simply commercial!

b) History of the city of Ta’if tells us that it was only second to Makkah in trade (their main exports being liquor, raisins, currants, wheat, wood etc) and industry (major being leather and dyeing). The tribe of ‘Saqeef’’ (Jewish tribe) advanced cash on interest, not only to the natives of Ta’if, but the business community of Makkah as well eg. the tribe of Mughairah who were their permanent customer. This advancement, which was not only restricted to cash but also to commodities between wealthy tribes of Taif and Makkah who were usually traders and businessmen, was only for their commercial purposes and not for their consumption and personal needs. One of the ways of receiving interest was to double the principle amount plus interest in case of non payment of loan and this practice was applied to both cash as well as commodities. They had become accustomed to it.

At the time of signing the peace treaty with the people of Ta’if, the Prophet imposed conditions: i) Total elimination of interest based transactions. ii) Giving up of interest owed to and from them.

c) The practice of making 2 trade trips, one to Yemen in winters and the other to Syria in summer was started by the tribe of Quraish of Makkah. These trips proved to be very profitable especially since being custodians of Kaa’ba, Quraish were looked at with respect, granted special concessions and protected in transit which was a necessity at that time. This way business & trade became their only means of livelihood. Investment became the order of the day in which women also took part and its circulation flourished and multiplied. With this background in mind, one can easily visualize that the city of Makkah more or less became the clearing house or the banking city and accustomed to their related amenities. It was only natural that interest was one of them. Since they advanced cash for commercial purposes and charged compound interest incase of default by the traders, and this earning of interest was their trade, they argued when Qura’n rendered interest haram (illegal) that the transaction of interest based loans is a type of trade in which the return on capital can be earned as in the case of rent received from assets. They could not differentiate between excess in shape of profit during a trade and excess in the shape of interest at the time of repayment of loan.

d) Therefore in pre Islamic days, we see that Syedna Abbas bin Abdul Muttalib and Syedna Khalid bin Waleed formed a company with joint capital whose prime business was cash advancement on interest. Similarly Syedna Usman was one of the wealthy businessmen who lent money on interest. There were many other traders dealing full time in interest extending a network of interest based transactions.

e) The way Syedna Zubair bin Awwam, who was famous for his trustworthiness, operated was quite similar to that of modern banking system. People used to deposit with him their capital as Amanah (trust or security). However, Syedna Zubair used to make it clear to the depositors that he would accept the deposits as a ‘loan’ and not as ‘security’ (Amanah). Because he knew that he will not be fully liable according to Shariah in case these Amanahs got destroyed but in case of having them as a loan, he will be fully liable to pay them back. He was afraid that in case of losing any deposited amount, his image as the trustworthy caretaker would be damaged. He therefore used the term ‘loan’ for such deposits to ensure guaranteed payment so that he enjoys everyone’s confidence in him. Another reason for using the word ‘loan’ was to legalize trading and earning profits on such deposits. Because if he got those deposits as Amanah, he could not utilize it for his business, as it is not permissible in Shariah to use Amanah. This clearly shows that borrowing in those days was not only for consumption purposes but for commercial purposes as well. Syedna Zubair left a will with his son Syedna Abdullah bin Zubair before he died to sell his property to repay the loan, if required. The total amount calculated after his death for repayment by his son was 22 lacs. It is obvious that a rich Sahaba such as Syedna Zubair did not owe this loan of 22 lacs out of any need; rather it was an investment of securities that was circulating in trade.

Mufti Irshad Ahmad is well versed in Islamic economics. Mufti Irshad has passed an Islamic economics course “Contemporary Business and Banking and its critical evaluation in the light of Shariah” from the Centre for Islamic Economics, Jamia Darul Uloom, Karachi.

Mufti Irshad has also recently completed his MBA program from (AMI) Iqra University, Karachi.

He is also presently associated with Iqra University as Lecturer in Islamic Studies and is enrolled in the MPhil program with specialization in Islamic Finance at (AMI) Iqra University, Karachi.

« Last Edit: March 31, 2013, 04:23:35 PM by Ayub »

Logged

QURAN 2:32. GLORY BE TO ALLAH, WE HAVE NO KNOWLEDGE EXCEPT WHAT YOU HAVE TAUGHT US. VERILY, IT IS YOU, THE ALL-KNOWER, THE ALL-WISE.

Mufti Irshad Ahmad is well versed in Islamic economics. Mufti Irshad has passed an Islamic economics course “Contemporary Business and Banking and its critical evaluation in the light of Shariah” from the Centre for Islamic Economics, Jamia Darul Uloom, Karachi.

Mufti Irshad has also recently completed his MBA program from (AMI) Iqra University, Karachi.

He is also presently associated with Iqra University as Lecturer in Islamic Studies and is enrolled in the MPhil program with specialization in Islamic Finance at (AMI) Iqra University, Karachi.

So you dont know the difference between riba, rent on money and rent on assets

Mufti Irshad Ahmad is well versed in Islamic economics. Mufti Irshad has passed an Islamic economics course “Contemporary Business and Banking and its critical evaluation in the light of Shariah” from the Centre for Islamic Economics, Jamia Darul Uloom, Karachi.

Mufti Irshad has also recently completed his MBA program from (AMI) Iqra University, Karachi.

He is also presently associated with Iqra University as Lecturer in Islamic Studies and is enrolled in the MPhil program with specialization in Islamic Finance at (AMI) Iqra University, Karachi.

So you dont know the difference between riba, rent on money and rent on assets

Q: Respectable Mufti Saheb: Kindly forgive me for intruding on your precious time and specially during the Holy Month of Ramadan when you will be too busy. Also please forgive me in addressing this letter in English as perhaps I may not be able to express myself more clearly in Urdu.

You have been making research on various Islamic laws and principles which remain not clear in minds of people like me who have no knowledge or study of matters. As a learned Scholar and having vast experience and knowledge of both Islamic Laws and practices of modern period, I hope to get a reply of my query from you. Matter is the same old one - What is the position of Bank interest or profit - by whatever name it is called according to Shariah. To express whatever I understand I give below my feelings:-

1. Authentic definition of 'Riba' which has been declared by Allah and Holy Prophet (S.A.W) in Qur'an as "Haram "?

2. As far as I can see the charges of profit or interest one expects to get in return of his providing money to a needy person to fulfill his requirement of daily needs in the absence of any source to fulfill these is 'Riba' but any such return on money used for business, to earn more money, should not come under the definition of 'Riba '.

3. Generally it is said that if rate of profit is fixed it comes under definition of 'Riba' and becomes 'Haram' but if it linked with profit earned, it is not 'Riba'. In my humble opinion this position is different. For example 'A' has got Rs. 100,000/= and he constructs a shop and gives it on fixed monthly rental for business. Or if he gives Rs. 100,000/= in cash for another business. What is the difference as far as 'A' is concerned. He is parting with his money, in one case he is giving it in kind and in another case in cash. Why return in both the cases be distinguished? Shop's rent is not dependent on profit or loss to the Shopkeeper. If rent paid for shop is 'rental for shop why fixed return on cash is not 'rental of money'?

This letter is just to clarify the position and correct my thinking and in no way to convert Haram into Halal. After all after 15 Centuries, our concept should be clear at least on basic principles of our faith and we should not find excuses for justification of our (mis) deeds.

I shall be grateful to have your considered opinion for my guidance at your earliest convenience.

(M.A. Siddiqui, Operations Director, Matiari Sugar Mills Limited)

A: I received your letter dated 27th January 1997 and apologize for the delay in replying it. It was due to my overwhelming involvements both here and abroad. I hope you will forgive me for this delay. The questions you have posed have been discussed thoroughly in a number of books written on the subject both in Urdu and English. If you wish to benefit from Urdu writings I would advise you to read the following books:"The Questions of Interest: Mufti Shafei (R.A.)"

"Islam & Modern Business: Mufti Taqi Usmani”

You may also benefit from the book of Dr. Anwar Iqbal Qureshi, titled" Islam and the Theory of Interest ".

I think if you want to be very clear on this point you should at least study these books. However, I am giving here very brief answers to your questions:

1) The legal definition of any prohibited act is seldom given in the Holy Qur'an itself. For example, wine has been prohibited but no definition of wine has been given. Similarly, adultery, telling lies, back-biting and bribery have been prohibited by the Holy Qur'an but the definitions of these acts have not been provided. Reason for it is that all these concepts were too clear in the minds of the addressees to need any such definition. The same is the case of Riba. The concept of Riba was widely recognized among the addressees of the Holy Qur'an and it is that concept which is reflected in the legal definition provided for Riba either in the Hadith or in the later literature of Islamic jurisprudence. According to this definition any transaction of loan where the payment of an additional amount on the principal is made conditional to the advance of such loan is called Riba.

2) There is no distinction in Shariah between advancing a loan to a needy person or advancing it to a business concern. The principle is that the person who advances money to another person should clearly decide whether he wishes to assist him or he wants to share in his profits. In the former case, he should withdraw from any claim of additional amount (in the form of interest) while in the latter case he should share his loss also. It is not permitted by Shariah that he claims profit but does not agree to share his loss.

Another point which needs attention here is that the distinction between a needy and a rich person in commercial matters is totally irrelevant. If a Shopkeeper sells a commodity to a poor person with a margin of profit which is not excessive nobody can say that this transaction is Haram because of the poverty of the purchaser. One can say that it would be more advisable for the Shop Keeper to give him the commodity either as a charity or at cost without charging a profit but it cannot be said that the marginal profit charged here is not Halal. If charging an additional amount on a loan is not in itself Haram then the same analogy should have been applied here meaning thereby that if a creditor charges a marginal interest on the loan he has advanced to a poor person it should not be condemned or declared as Haram, but even the modernists who hold the commercial interest as Halal admit that this kind of transaction is Riba and prohibited by the Holy Our'an. It proves that the basis of the prohibition is not linked to the poverty of the debtor. Had it been so, charging profit from a poor person would also have been declared as Haram. Therefore, the only basis for distinction between a sale and a transaction of Riba is that the former relates to commodity while the latter relates to money.

3) There are several differences between interest and rent. The basic principle of Shariah is that profit is justified where a person has undertaken the risk of the thing given to another person. In a transaction of loan, after advancing money, the creditor does not take any risk of the money because if the money is lost in the hands of the debtor after he has taken delivery thereof the debtor is bound to repay the loan. As the creditor did not take any risk of it, therefore he cannot charge additional profit thereon. While, in the case of a property leased out to the Lessee, the Lessor has taken the risk of the property, If the property is destroyed, he will bear the loss, therefore, it is justified for him to-charqe rent from the Lessee. Another difference is that the property is always subject to depreciation while money does not depreciate. Therefore, charging of rent in the first case is justifiable while it is not so in the later case.

I hope that these brief answers will at least explain the basic concepts. However, for greater details you should study the books I have referred to above.

Your third point elaborate some difference on rent on money and rent on assets.

However, i feel that giving money on rent is more riskier than renting physical assets such as house, shops, office buildings owing to mobility of money as compared to physical assets. the borrower can easily take money and become absconder. So renting money is more riskier.

Your second point money do not depreciate as compared to other assets is full of fallacy. Consider 1950 one lac rupees with that of 2013 one lac rupees. you will find that rupee has depreciated by more than 90 percent of its value.

Your third point elaborate some difference on rent on money and rent on assets.

However, i feel that giving money on rent is more riskier than renting physical assets such as house, shops, office buildings owing to mobility of money as compared to physical assets. the borrower can easily take money and become absconder. So renting money is more riskier.

Your second point money do not depreciate as compared to other assets is full of fallacy. Consider 1950 one lac rupees with that of 2013 one lac rupees. you will find that rupee has depreciated by more than 90 percent of its value.